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COGS Expense

Forum|Forum|8 years ago
September 20, 2017
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I am working with a company who provides a driveway maintenance service. They use trucks in order to provide the service. Up until now, I have been expensing fuel as car & truck expense but the company is reavaluating his pricing based on his costs. and am wondering if I should be expensing fuel as COGS.

Best answer by john-pero

I would leave fuel costs on page 1 of Schedule C as operating expenses since you are not reselling the fuel to the customers. Other standard operating excpenses would be the same. Reserve COGS for items you turn into a profit center - items, not services. You could make Labor OCGS by deducting payroll but to my mind that gets messy.

If you want to determine profitability and what should be charged then that is a different story and different calculations. You can add fuel costs as we as labor and materials to any customer job. Then you can run P&L by customer and/or job. Only charge what is applicable to the actual jobs - not what it takes to keep the lights on - you would be open for business even on days when there is no business.

In the overall to determine if pricing is adequate you would even have to include depreciation on the trucks as well. This is a good exercise for off the books use of excel. Plug in billable hours over time, depreciation, taxes, insurance, interest, debt payment to determine actual cost per hour billed. There is more involved in this but consider where yoiu take those trucks for service. Probably $80-$100 per hour flat rate shop time but chances are the average tech ony earns $15-$25 per that same hour.

john-peroAnswer

Level 12

I would leave fuel costs on page 1 of Schedule C as operating expenses since you are not reselling the fuel to the customers. Other standard operating excpenses would be the same. Reserve COGS for items you turn into a profit center - items, not services. You could make Labor OCGS by deducting payroll but to my mind that gets messy.

If you want to determine profitability and what should be charged then that is a different story and different calculations. You can add fuel costs as we as labor and materials to any customer job. Then you can run P&L by customer and/or job. Only charge what is applicable to the actual jobs - not what it takes to keep the lights on - you would be open for business even on days when there is no business.

In the overall to determine if pricing is adequate you would even have to include depreciation on the trucks as well. This is a good exercise for off the books use of excel. Plug in billable hours over time, depreciation, taxes, insurance, interest, debt payment to determine actual cost per hour billed. There is more involved in this but consider where yoiu take those trucks for service. Probably $80-$100 per hour flat rate shop time but chances are the average tech ony earns $15-$25 per that same hour.

vpcontroller

Level 7

Works for me!

If there's a way to track costs with customer/job much better.

B

bvindasAuthor

Interesting insight. I have a lot of work to do.
Thanks.

qbteachmt

Level 11

You need to note who Owns the vehicles, so that we know how operating costs would be handled. We don't know if fuel is a valid auto expense or not. It could be that you need to track all auto operating costs, or these costs are for personally-owned vehicles, that are Not tracked as auto operating costs.

Fuel used in Equipment would be operating costs, such as Graders and Generators.

And Job Tracking Fuel never makes sense, because the fuel and other consubables are not bought only for a specific job. They are bought when you run low. Even repairing a tire or replacing a belt is part of Maintenance and Operations, not Job Specific. That's why Job Specific is done as Mileage or Operating Hours, given a value, or an allocation of Overhead. Example:

You buy a Fortruck and have an Expected amount of time available for use and a Maintenance and Repair expectation and a Useful Life = you get a rough Per Hour rate that is Job Tracked, not creating any Real Financial data. Actual Costs for maintenance and repair are already part of the P&L, as is the Depreciation allowance from the asset purchase. In these examples, you can allocate a Job Cost without it being a Real Expense.

katyqbadvisors

Absolutely use COGS it's a direct cost of goods sold. We often do this and it especially helps in states with franchise tax. In Texas for example anything under 1 mil doesn't pay franchise fees. So if Rev- COGS= less than 1mil no franchise fees.

You can easily change the chart of account from an expense to a COGS. Just did it today in fact:)

@bvindas wrote:

I am working with a company who provides a driveway maintenance service. They use trucks in order to provide the service. Up until now, I have been expensing fuel as car & truck expense but the company is reavaluating his pricing based on his costs. and am wondering if I should be expensing fuel as COGS.

katyqbadvisors

I also want to clarify the fuel used to operate the trucks is COGS but the fuel used for sales and admin is not COGS! So if this is your situation then create a new COGS don't change your existing expense account!

Q

quinn1

Your thoughts on this are appreciated!

@katyqbadvisors

Things like, rock, equipment rental for jobs, insulation, pipe fittings and other materials I purchase, and bring to my job site, then completely use on the job... I have been categorizing these as COGS in my chart of account as they were already created in QB (construction materials cost, equip rental for jobs, etc) Now I am reading that cogs is for inventory, for things you sell or resale.. which I more, move dirt, build house pads, drive ways and do some demolition jobs and small construction jobs. Am I still correct in categorizing these things as COGS?